NGFS: A primer on climate scenarios

The NGFS, in partnership with leading academic institutions,² have developed six distinct climate scenarios that provide a global, harmonized, and common framework for quantifying the impacts of climate change to the economy and global financial system. These climate scenarios, listed below, represent a wide array of possible climate futures. A complete description of these scenarios can be found in the NGFS technical documentation.³

• Net zero 2050
• Below 2 °C
• Divergent net zero
• Delayed transition
• Nationally determined contributions (NDCs)
• Current policies

The NGFS categorizes climate scenarios into one of three transition types including Orderly, Disorderly, or Hot house world, based on the climate scenario narrative and modeled global response to climate change. NGFS climate scenarios span varying degrees of climate change mediated transition and physical risk. Table 1 provides a qualitative summary of high-level indicators of climate induced risk. For scenarios in the Orderly transition, the global response to climate action is immediate and coordinated, resulting in low variability in regional climate policies, a moderate-to-fast pace of technological change, and a modest deployment of Carbon Dioxide Removal (CDR⁴) technologies. These actions limit global warming to < 2 °C, and thus result in low physical risk and low-to-moderate transition risks. In the Disorderly transition, failure to coordinate climate policy across sectors and/or a delay to climate action may result in significant regional differences in climate mitigation and strategy, as well as periods of rapid technological change. Climate scenarios in the Disorderly case can limit warming to < 2 °C resulting in low physical risks but may demonstrate higher transition risks compared to the Orderly case. Scenarios in the Hot house world case reflect climate ambitions extrapolated from nationally determined contributions or current climate policies. For scenarios in the Hot house world case, global action on climate change is incremental and ultimately insufficient to limit significant global warming, resulting in >~2.5 °C+ by the end of the century. Hot house world scenarios demonstrate low transition risk but result in severe physical risks including irreversible impacts such as increases in global sea level.

Table 1. NGFS Climate Scenarios – Qualitative Macro-Financial Risk Assessment (adapted from Ref³)

The NGFS evaluates each climate scenario independently across three separate Integrated Assessment Models (IAMs), see Table 2. IAM’s are a class of scientific computational modeling that captures interactions between human activities, society, economy, and earth systems. IAM’s rely on key assumptions regarding the future state of the world, which encompass policy, technological, and societal dimensions (such as policy targets, energy costs, population growth, etc.). These assumptions may be defined based on the climate scenario narrative (e.g., setting specific constraints on global warming), as well as exogenous and endogenous modeling assumptions. For each climate scenario, NGFS aligns the three IAMs to reflect consistent socioeconomic conditions and climate policy assumptions. However, IAM’s may differ in several key regards such as their model formulation, spatial and temporal resolution, sectoral granularity, technology representation, climate mitigation options, and other key variables (see Table 2), resulting in differences in climate outcomes across IAMs.

NGFS reports modeling results across unique combinations of IAM’s and climate scenarios, which enables stakeholders to explore model and scenario uncertainty by: (1) for a fixed climate scenario comparing climate outcomes across multiple IAMs, or (2) for a fixed IAM comparing climate outcomes across climate scenarios. 

Table 2. Integrated Assessment Models used in constructing NGFS Climate Scenarios (adapted from Ref³)

Climate scenario analysis is a powerful tool for quantifying and contextualizing the impact of human development and societal changes on the earth’s global climate system. As the drivers for climate change are deeply embedded in human-environmental systems, climate scenario analysis enables a broad comparison of climate outcomes across different ensembles of environmental, social, political, technological, economic, and cultural change. Moreover, climate scenario analysis can aid central banks and supervisors in understanding the long-term physical and transition risks to the economy and financial system across possible climate futures. To demonstrate the utility of this perspective, Figure 1 highlights the physical-transition risk tradeoff in NGFS climate scenarios at the end of the century (2100).